Federal law should not have been applied in determining what constituted “reasonable” attorney fees in a successful consumer class action against auto makers Volkswagen and Audi, the 1st Circuit has ruled in vacating a $30 million fee award.
The plaintiffs are residents of seven states who sued for consumer fraud, alleging that nearly 500,000 Volkswagen Passat and Audi vehicles made between 1997 and 2004 had defectively designed engines that made them prone to the formation of damaging engine sludge. The plaintiffs’ statewide class actions were consolidated for multidistrict litigation in Massachusetts.
The parties negotiated a settlement that provided for the extension of vehicle warranties and compensated car buyers and lessees for engine repair or replacement costs.
In addition, the settlement required the auto makers to pay reasonable attorney fees.
The district court applied federal law to award $30 million to several groups of plaintiffs’ attorneys.
But the 1st Circuit held that, where a settlement agreement provides that the defendants will pay reasonable fees, state law governs the award of fees. In reaching this conclusion, the court rejected the plaintiffs’ contention that federal law applied pursuant to Federal Rule of Civil Procedure Rule 23(h), which generally authorizes fee awards in class actions.
“Rule 23(h) does not provide a free-floating grant of authority to apply federal law to award attorneys’ fees in class actions; rather it allows the federal court to make fee awards where they ‘are authorized by law or by the parties’ agreement,’” the court said.
The court held that Massachusetts law applied pursuant to the choice-of-law principles that govern multidistrict litigation, and remanded the matter for a determination of fees under that state’s fee-shifting statute.
U.S. Court of Appeals, 1st Circuit. In re Volkswagen and Audi Warranty Extension Litigation, No. 11-1438. July 27, 2012. Lawyers USA No. 993-3996.